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Eighth District - St. Louis Beige Book March 06, 2013

The conomic activity in the Eighth District has expanded at a moderate pace since the previous report. Recent reports of planned activity in manufacturing and services have been positive. Retail sales over the past three months have increased compared with the same period a year ago. Reports on auto sales over the same period have been mixed. Residential real estate market conditions have continued to improve, and commercial and industrial real estate markets have also improved. Lending activity at a sample of large District banks indicated little change during the fourth quarter of 2012. Prices, wages, and employment levels over the past three months have stayed the same or increased for a majority of contacts across the District.

Consumer Spending

Contacts reported that retail sales in the past three months were up, on average, relative to the same period last year. Fifty percent of contacts noted increases in sales, while 25 percent noted decreases and the rest saw no changes. Sixty-three percent of retailers reported that sales levels met their expectations, and the remaining retailers reported that sales fell short of expectations. About 69 percent of retailers noted that their inventories were at desired levels, while the remaining contacts reported that their inventory levels were too high. The sales outlook over the next three months was positive: 63 percent of retailers expect sales to increase over 2012 levels, while 19 percent expect sales to decrease.

Reports from car dealers about sales in the past three months were mixed. Twenty-eight percent of the car dealers surveyed saw increases in sales, while 36 percent saw decreases and 36 percent saw no changes. Thirty-six percent of car dealers reported an increase in used car sales relative to new car sales, and 36 percent of car dealers reported the opposite. Sixty percent of contacts reported increased sales of low-end vehicles relative to high-end vehicles. About 62 percent of respondents reported that their inventories were too high, while 8 percent reported that their inventories were too low. The sales outlook for the next three months was optimistic: 54 percent of the car dealers expect sales to increase over 2012 levels and none of the survey respondents expect sales to decrease.

Manufacturing and Other Business Activity

Reports of plans for manufacturing activity have been positive since our previous report. Several manufacturing firms reported plans to add workers and expand operations in the Eighth District, while fewer manufacturers reported plans to lay off workers or reduce operations. Firms in steel, automobile, appliance, furniture, automobile parts, plastics, wood products, lumber, beverage, and machinery manufacturing industries announced plans to hire new employees and expand operations in the near future. In contrast, firms that manufacture solar equipment, medical devices, food, and electric components announced plans to lay off workers.

Reports of planned activity in the District's service sector have also been positive since the previous report. Firms in logistics and transportation, marketing, casinos, education, and legal services announced new hiring or expansion plans in the District. In contrast, firms in healthcare services and information services announced plans to reduce employment.

Real Estate and Construction

Home sales continued to increase throughout most of the Eighth District on a year-over-year basis. Compared with the same period in 2012, January 2013 year-to-date home sales were up 19 percent in Louisville, 23 percent in Little Rock, 11 percent in Memphis, and 23 percent in St. Louis. Residential construction also increased in most of the District. Compared with the same period in 2012, January 2013 year-to-date single-family housing permits increased 19 percent in Louisville, 9 percent in Memphis, and 44 percent in St. Louis. In contrast, permits decreased 1 percent in Little Rock over the same period.

Commercial and industrial real estate markets improved modestly throughout most of the District. Contacts in Louisville reported that office asking rents increased during the fourth quarter of 2012, while contacts in Little Rock noted that office vacancy rates decreased. A contact in St. Louis reported strong office leasing and industrial sales activity. A contact in Memphis reported stable commercial real estate conditions. Commercial and industrial construction activity continued to strengthen throughout most of the District. A contact in northeast Mississippi noted that commercial construction and renovation activity increased in the fourth quarter of 2012. Contacts in St. Louis noted a few commercial construction projects underway and plans for a speculative industrial building project. Contacts in Louisville reported several ongoing commercial construction projects in Bowling Green.

Banking and Finance

A survey of senior loan officers at a sample of large District banks found little change in overall lending activity during the fourth quarter of 2012. During this period, credit standards and demand for commercial and industrial loans remained largely unchanged. Credit standards for commercial real estate loans ranged from basically unchanged to eased somewhat, while demand ranged from unchanged to moderately stronger. Credit standards for prime residential mortgage loans remained generally unchanged, while demand ranged from moderately weaker to moderately stronger. Meanwhile, credit standards and demand for consumer loans remained largely unchanged.

Agriculture and Natural Resources

Annual crop production in the District's states declined for most crops in 2012. The District's states produced less corn, cotton, soybeans, and wheat in 2012 compared with 2011; in contrast, the District's states produced more rice and sorghum. The effect of the decline in production on farm incomes was partially offset by higher prices in the District's states for corn, rice, sorghum, and soybeans. January coal production in the District's states (excluding eastern Kentucky) was down 3.6 percent relative to a year ago.

Prices, Wages, and Employment

Sixty-one percent of contacts indicated that price levels over the past three months have stayed the same, while 25 percent indicated that prices have increased relative to the same period last year. Similarly, half of contacts noted that non-labor costs over the past three months have stayed the same, while 48 percent of contacts noted that non-labor costs have increased. Forty-three percent of contacts, in turn, noted that wages over the past three months have stayed the same, while 57 percent noted that wages have increased relative to the same period last year. Meanwhile, 54 percent of contacts reported that employment levels have remained the same over the past three months, while 35 percent reported that employment levels have increased, compared with the same period last year.